Meet the Investors: Cash Flowing Rentals Despite an Incredibly Expensive Market With Russell Brazil

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Recently, I spent a week in D.C. meeting fantabulous people and learning their real estate stories—and now I’m sharing them with you. In this episode of “Meet the Investors,” I introduce you to my good friend Russell Brazil, a prolific member of the BiggerPockets community.

It’s because of the BiggerPockets community that I was able to find the people to interview and tell their stories and, you know, get to know them and build those relationships. So be sure to follow along with the second season coming up here in D.C., Baltimore, Maryland, Virginia, these areas.

I’m telling you the Forums, it’s more than just understanding the deals. The community itself is worth investing in. Interacting with the Forums is gold.

The deals will come. The deals will come easy. The money will come—if you build those relationships.

With that, let’s meet my friend Russell.

We’re going to talk about a place in D.C. We’re going to talk about a place in Baltimore. And we’re going to discuss the variation between different markets in D.C. and get some really good advice about how to invest in different markets, what you have to do to know your market, and how to invest in a high-cost-of-living area.

Let’s get to it.

Meet the Investor: Russell Brazil

Hey, what’s going on? My name is Russell Brazil. I’m a full-time real estate agent and investor in the D.C. metro area.

I’ve been on BiggerPockets now about seven years. I am not in the top 10 posters. However, I am the No. 2 vote-getter on the site. I post right around 100 posts per week, trying to really add value to the community.

(I’m also a moderator, so if I’ve hidden your post, I really apologize for that. We all get moderated at some point, including moderators.)

I’m a BiggerPockets super fan. My business revolves around BiggerPockets. When Alex asked me to be part of this video series, of course, I was super excited to be part of it and super excited to tell you a little bit about what I do.

Related: Meet the Investors: Husband & Wife Flip Team Aims to Win Big With Nate Cross

My Latest Real Estate Deals

In the video above, we’re looking at a property in the 16th Street Heights neighborhood of D.C. We’re doing a pre-inspection for one of my clients who’s a BiggerPockets member.

Here in D.C., we’ve got to do pre-inspections. We’re going to do a home inspection before we even make an offer, because getting an offer accepted with a home inspection contingency is absolutely impossible in this market.

It’s in a tier-one, Section 8 neighborhood, which means that top-level rents in this neighborhood for Section 8 are $5,500 a month—just utterly insane.

After that, we’ll take a look at a multifamily house in the Petworth neighborhood. It’s actually one of my favorite types of properties to find in D.C. It’s a legal multifamily that was mislisted as a single-family property—one of the easiest ways for us to gain equity quickly is by buying these properties that are mislisted.

So, I’m pretty excited. But first…

Property 1: Rowhouse —16th Street Heights

Let’s talk about this rowhouse in the 16th Street Heights neighborhood of D.C.

• Price: $700,000
• Bidding Estimate: $800,000
• Rent (to Section 8 tenant): $5,500/month
• Normal Market Rent in Neighborhood: $3,500-3,700/month

By going Section 8, we’re able to get a huge increase in that rent, which makes these Section 8 neighborhoods an incredible strategy here in the D.C. area.

You might think that $700,000-800,000 is an incredibly high amount of money to pay for a rental property. And I fully understand that thinking. Here in D.C., this is slightly above the median price point—but yes, still expensive.

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What’s going to happen here is this person will buy this with an owner occupant loan. Initially, they will live in it for a year, and then they will turn it into a rental down the road. He’s going to come to the table with about 10% down here—about $80,000 into making this initial purchase.

When he moves out, the mortgage payment will probably be somewhere around $3,500, and he’s going to have $2,000 a month of free cash flow.

In addition to that $2,000 a month he’ll get every month on this property, this neighborhood is a highly appreciating neighborhood. This neighborhood will go up in value about $100,000 every three or four years.

Related: Meet the Investors: Switching to Rentals After 15 Years of Flips With Cindy Veit

So, what seems like an incredibly expensive property (and it is) will provide a really high return on equity based on both the high level of appreciation, as well as the huge amount of rent we can get on the Section 8 program.

A lot of people have self-limiting beliefs on what they think the price of the property should be when they’re buying a rental. Many newbie real estate investors will focus on, you know, $100,000-200,000 properties and think that more expensive properties can’t work as a rental.

That’s a huge self-limiting belief. And when we have that self-limiting belief, we’re going to end up invariably pushing ourselves down to the higher-risk properties that are in those cheaper price points.

We’re able to get six full bedrooms in this house, which will maximize the amount of people we can get in the property.

Property 2: Multifamily — Petworth neighborhood

OK, that was a really expensive neighborhood in D.C. The other property is in a really cheap neighborhood in Baltimore. We’ve only gone 45 minutes away, but we are in completely different markets and doing a completely different project.

The last property was a rent-ready place, and this place is going to be a rehab. We’re going to have to do not quite a full-gut rehab—but pretty close.

You have to know your market. Market knowledge is the greatest mitigator of risk we have. So, let’s go over some numbers on this place.

• Purchase Price: $45,000-50,000
• Rehab: $30,000-35,000
• All In: $80,000-90,000
• ARV: $100,000
• Expected Sale Price: $120,000
• Cash-Out Refinance: $90,000
• Monthly Rent: $1,100
• PITI: $800
• Cash Flow: $300/month

So, we’ll get the entirety of our investment of the $80,000 back out, plus another 10 grand.

Related: Meet the Investors: Military Spouse & Live-In Flipper Jenny Villalobos

Advice for Other Investors

Here are three really important concepts that have helped me build my real estate business.

Real estate is about people

It’s not about properties. Making money in real estate comes from building genuine relationships with people by growing our network. When we grow our network and network with other individuals, we get exponential growth through that.

We like to formulate these relationships and really network with other people who are also high-level networkers.

Keep your deal pipeline full

The second most important concept is lead generation. Keeping that deal pipeline full is the No. 1 skill a real estate investor must have. If you can’t be a good lead generator, you will not be good at this business.

The type of lead generation I do primarily is what’s called inbound marketing. Inbound marketing is when we create social media content or any type of content that provides people value and gives them information. You’ve probably seen really great examples of my inbound marketing on the BiggerPockets Forums.

I go in there; I answer people’s questions. They get value from those answers. And what that does, then people call me because they know I know what I’m doing. So that inbound marketing creates situations where I’m able to grow my network. It also brings in leads. Where is my next client coming from? Where is the next property coming from?

Imitate, don’t innovate

The third most important concept we wanted to use is to imitate, not innovate. What does that mean? We want to copy the systems of other successful people in the marketplace.

What are they doing? What are they buying houses for? What are they selling them for? And we want to do the same exact things.

If we’re looking at a flip in a neighborhood, we want to look at the finishes that the other flippers in that neighborhood are using. Are they using cherry cabinets or are they using white shaker-style cabinets? Whatever they do, we want to copy it.

We don’t want to innovate. We want to do exactly what they’re doing, because they’ve already given us a proof of concept that the market is willing to bear what they’re doing. So we always just want to copy what the competition is doing.

This carries over to all of our other concepts in business. We want to copy the systems of what successful people are doing. If we copy what people are doing, we’re going to much more quickly and easily be able to replicate their successes.

My name is Russell Brazil, and I’m a real estate and BiggerPockets addict. BiggerPockets has made me a ton of money.

Do you want to make a ton of money, too? Join me!

How is the BiggerPockets community benefiting your journey?

Share in the comment section below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.